Dec
03

How the Fiscal Cliff Will Affect Chicago Real Estate

December 03, 2012

fiscal cliff chicago new homesYou may have been hearing a lot about ‘the fiscal cliff,’ since the election, but it’s not always easy to understand what the phrase means in relation to the housing sector. Here’s a rundown of how the fiscal cliff affects the Chicago real estate market.

In 2007, Congress passed the Mortgage Debt Relief Act, which waived nearly $2 million in loan forgiveness taxes. The act is considered part of the ‘fiscal cliff’ and was established to shield homeowners from taxes in the following situations:

  • A bank reduces the mortgage principle.
  • A borrower sells their home in a short sale and the purchase price is less than the remaining balance.
  • A bank waives the remainder of a mortgage that it couldn’t regain during foreclosure.

On December 31, 2012, the Mortgage Debt Relief Act will expire. If Congress does not renew the act as part of the ‘fiscal cliff,’ then homeowners who owe more than their house is worth will be required to pay certain tax fees.

Many home builders believe that the Mortgage Debt Relief act helped pull the housing market out of the recession. Though home sales have yet to reach pre-2008 levels, the market has been slowly improving and home prices are rising in many large metro areas. A failure to renew the act could potentially lead to more foreclosures and less short sales. In recent months, short sales have proven to be beneficial to both buyers and sellers, since the average price of a property sold through a short sale is about $30,000 more than a home seized in a foreclosure.

However, if the fiscal cliff is not renewed, it doesn’t necessarily spell disaster for the housing market. A huge factor propelling the current market is the economy in general and as job growth continues to make steady gains, new home sales can be expected to follow suit.

What are your opinions on the fiscal cliff and Mortgage Debt Relief act?

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Jessica Thom

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